2021 (5) TMI 396 - Tri - Companies Law

Oppression and mismanagement - one director of the company was intentionally not invited for the board meeting of 20.12.2020 - the three directors passed resolutions to increase their salary without the knowledge of director who was not invited in the meeting - financial statements were signed without obtaining the approval of the board members at a duly convened meeting - AGM conducted by the three directors without the knowledge of Mr. Rahul Modi and without sending any notice to the Mohan Goenka group. HELD THAT - There is broad admission that the company is a family-owned company. The board representation was 3 1 in favour of the petitioners. The act of Mr. Rahul Modi the representative of the respondent group on the board for a single board meeting is the prime cause of the respondents putting motion the legal process for removal of the three directors of the petitioners group. There is no allegation of any financial misdemeanour in the form of siphoning off funds or business of the Respondent No. 1 Company in the requisition for removal of the existing directors representing the petitioners group. There are no merit in the contention of Mr. Joy Saha learned Senior Counsel for the petitioners that there must be good reason to overturn an arrangement which appears to have worked satisfactorily for about twenty-one years. The primary reason given - though not the only reason - is the alleged omission to invite the sole representative of the respondent group for one solitary meeting of the board. This is not enough. The complete exclusion of the petitioner group from the board cannot be justified merely by pointing out that the meeting is a validly convened meeting that the resolutions were duly approved and therefore the court should not intervene. There is no gainsaying that the principles of equity have been greatly disturbed by the act of the respondent group in removing all the three directors of the petitioner group and assuming 100% control of the board. The petitioners have made out a prima facie case for grant of the interim reliefs. List the main CP for hearing on 20.07.2021 for further consideration.

Summary

Issues involved:
Allegations of oppression and mismanagement under sections 241/242 of the Companies Act, 2013, by petitioners holding 18.15% of the paid-up share capital. Dispute over the removal of directors and appointment of new directors in a family-owned company resembling a quasi-partnership.

Detailed Analysis:

Allegations of Oppression and Mismanagement:
The petitioners, represented by Mr. Joy Saha, alleged acts of oppression and mismanagement against the respondents, citing instances like intentional exclusion of a director from a board meeting, unauthorized salary increases, and signing financial statements without proper approval. The petitioners contended that the respondent group's motive was to eliminate competition by running the company to the ground, affecting their legal rights in a quasi-partnership setup.

Arguments by Respondents:
Mr. Ratnanko Banerji, representing Respondent Nos. 2 & 3, argued that the petition lacked cause of action as the resolutions challenged were from a meeting called by the board, including the petitioners. He emphasized that directorial complaints are not suitable for a section 241/242 petition and questioned the petitioners' right to challenge results of a meeting they themselves convened.

Interim Relief and Legal Precedents:
After considering arguments, the tribunal granted interim relief by staying resolutions from the EGM until further orders. The judgment highlighted the application of equity principles in family-owned or quasi-partnership companies, referencing the Ebrahimi case. It noted the petitioners' prima facie case for relief due to the disruption caused by the respondent group's actions.

Conclusion and Future Proceedings:
The tribunal directed the respondents to file replies to the company petition within four weeks and scheduled a hearing for further consideration. The judgment underscored the need for a valid reason to disrupt longstanding arrangements in family-owned entities and indicated a potential violation of equity principles by the respondent group's actions.

This detailed analysis encapsulates the key arguments, legal principles, and the tribunal's decision in the case involving allegations of oppression and mismanagement in a family-owned company resembling a quasi-partnership.